All posts tagged Investment Banking

Over at Dow Jones Banking Intelligence, Joe Ortiz has been taking a look at Deutsche Bank’s woes. Here’s a taster of his article, the full version of which can be read at DJBI, a subscription only service.Click here to subscribe.

This week, you can just imagine Deutsche Bank’s CFO Stefan Krause turning to co-CEO Jürgen Fitschen and lamenting, “Unglück kommt selten allein.” It never rains but it pours.

Already regarded as being among the weakest of Europe’s major banks when it comes to capital, Deutsche on Thursday warned that expectations of a fourth quarter net profit of between €500 million to €600 million would be affected by a “significant negative impact” following a review of impaired assets, which could lead to a loss.

Mr. Krause declined to be more specific and the bank in a statement said the review was still “ongoing.”

That means the bank’s strong investment banking franchise is running very fast for the whole group to stand still at best. It also implies that in order to maintain its first quarter 2013 Basel III core Tier 1 capital ratio target of 8%, something else will have to give. Credit Suisse says it expects €250 million of deleveraging costs and €280 million of restructuring costs in Q4, leading to a pretax loss of €448 million.

All else being equal, Deutsche might not have too much trouble improving its capital ratios, which are fundamental for market confidence. But the trouble with Deutsche is that all else is very far from equal. In fact, the past week has been a disaster, and the market has slashed 5.6% off its shares in the last two days.

Joe Ortiz, our banking expert at Dow Jones Banking Intelligence, argues that European banks will continue shrinking their balance sheets in 2013, in a process that will ultimately lead to consolidation. Here’s a taster of his article, more of which can be read over the jump. The full report is available on DJBI, a subscription only service.

A couple of years ago, many observers expected that by 2013 the outlook for European banks would have improved to the extent that most would be creating value amid a recovering economy. A lot has happened since then.

Even before the current travails of the euro, this was shaping up to be an economic cycle like no other. The U.S. economy, usually the engine of global recovery, has improved slowly post-2008 while the country’s housing market is still under performing.

The Greek debt crisis persists and most of Europe is in austerity mode in an attempt to cut fiscal deficits and the massive borrowing which has papered over structural cracks.

European banks have suffered for a myriad of reasons but the continent’s sovereign debt crisis has left many over exposed to government debt at a time when they were already over-exposed to fragile real estate lending.

Those with investment banking exposure have experienced one of the longest risk-off periods in memory with market activity at rock bottom, M&A volumes low and returns which do not make the cost of capital.

Over the past year, European bank shares have risen 23% from a low base as European Central Bank measures such as liquidity injections and the promise/threat of Outright Monetary Transactions have reduced the perception of market risk.

“But there is no feeling of jubilation,” says Merrill Lynch strategist Alan Davis in a note to clients Thursday. “Anecdotal (evidence) suggests most sector funds seem to have delivered 8% to 12% returns.”

That means investors were finding it difficult to trust the rally and that could be because there may be more difficult waters ahead for European banks to navigate…

What will the banker of the future look like? He’ll be “more female.” He, err, she will be older (as retirement age will be higher), more mobile and a tech-aficionado who works more but earns less, according to one of Deutsche Bank’s top executives.

Sound realistic? Stephan Leithner, Deutsche Bank’s executive board member responsible for human resources and compliance, thinks so. The changing face of bankers is tied to the banking industry’s need to reinvent itself to win back customers, he reckons.

Just in case you missed it, here’s efinancialnews.com’s take on the new whizz kids at UBS, by Matt Turner, our colleague over at FN

So, on Monday, Andrea Orcel unveiled his leadership team for the revamped investment bank at UBS, a restructure that will see David Soanes take on the top role in Europe and Simon Warshaw step down from the unit’s executive committee to focus on clients.

Here, Financial News profiles the bankers at the heart of the new business.

• David Soanes, head of CCS in Europe, the Middle East and Africa
Soanes is a UBS lifer, having joined the debt capital markets business at what was then SBC in 1991 after studying at Cambridge. Since then he has risen swiftly through the ranks. He has in the past been head of debt capital markets for financial institutions in Europe, and led both FIG and global markets in Emea. His promotion to head of CCS in that region is his second prominent promotion in a little over 18 months, having been named global head of capital markets in March last year.

• Steve Cummings, head of CCS in Americas
Cummings is a more recent addition to UBS’s ranks, having joined the bank last year as chairman of Americas investment banking. He had previously been head of corporate and investment banking at Wachovia since 1998, leaving in early 2009 when he elected not to join Wells Fargo, which acquired Wachovia. He began his career in 1979 in New York, working in corporate finance at broker Kidder Peabody. He joined Bowles Hollowell in 1984 and was elected chairman and chief executive officer in 1993. He is a graduate of Colby College and has an MBA from Columbia University.

• Matthew Grounds, head of CCS in Asia Pacific
Grounds, considered one of Australia’s top investment bankers, was named joint global head of investment banking in 2011 alongside Simon Warshaw. Since joining UBS from Schroders in 1994, Grounds has worked on many of the largest deals in his home country, including the mergers of miners BHP and Billiton, Westpac and St George bank, and the Australian Stock Exchange’s proposed tie-up with the Singapore Stock Exchange.

Our colleagues at efinancialnews.com have compiled a list of the City’s leading oil and gas investment bankers–complete with photo gallery. We thought you may like to take a look. Here’s an extract from the main article:

FN kicks off its 7-strong lineup with the team at RBC Capital Markets, comprising Tim Chapman, Jeremy Low and Matthew Coakes.

FN reports that Tim Chapman is a “key figure” in the team at RBC Capital Markets, which acted as joint financial adviser to Premier Oil on its $1 billion acquisition of 60% of Rockhopper’s contentious Falklands assets. Mr. Chapman, a former exploration geologist, who, as managing director and head of international for oil, leads the energy investment banking business across Emea.

Hot on their heels come Gonzalo Garcia and Alastair Maxwell, from Goldman Sachs. According to FN:

“Goldman possesses a strong natural resources and oil and gas franchise, with key figures including Gonzalo Garcia, the London-based head of natural resources for Emea, and Alastair Maxwell, the London-based global co-head of oil and gas. The bank is ranked fifth in the global oil and gas M&A adviser rankings for 2012 year-to-date, according to Dealogic. The team is currently working on the sale of Repsol LNG, and has previously worked on bond issues by Shell, $2.5 billion, and Total, $1.5 billion.”

Then there’s the team from JP Morgan–Ben Monaghan and Jeremy Wilson.

FN reports:

“When BP was arranging a fire sale of certain Gulf of Mexico assets in the wake of the Deepwater Horizon disaster, JP Morgan was the bank appointed to advise potential purchasers Plains Exploration, playing its part in an eventual $5.5 billion acquisition. In Emea, the bank’s work with high-profile companies is led by Ben Monaghan, an 18-year veteran of the firm who works alongside Vice-chairman Jeremy Wilson and a core team.”

Goldman Sachs has launched a reorganization of its analysts and associates in Europe, doing away with country-based and sector-based teams and creating two super groups focused on northern and southern Europe.

The northern unit will be run by Mark Sorrell, co-head of U.K. investment banking, and Michiel Lap, head of Goldman Sachs’s Nordic and Netherlands investment banking business. The southern unit will be run by Clare Scherrer, head of Goldman Sachs’s global industrials group in EMEA, and Francesco Pascuzzi, co-head of investment banking in Italy.

The restructuring encompasses all of Goldman’s analysts and associates in the European investment banking division.

The number of investment-banking jobs at the world’s largest banks has fallen by some 5.6% over the past 12 months, according to analysis by our sister website Financial News, as financial institutions look to stave off the impact of increased costs and declining fee revenues.

According to the publication’s analysis of eight investment banks to have published staff numbers in their second-quarter results, global investment-banking jobs fell from 176,495 at the end of June 2011 to 166,606 at the end of June 2012.

The reduction has been at a fairly steady pace, with 2.7% coming between the end of June 2011 and the end of last year, when 171,724 investment banking staff were employed. The percentage fall since the end of 2011 and the halfway point of 2012 was slightly steeper, at 3%.

The figures were calculated by looking at second-quarter results filings and divisional headcount numbers for banks that break out staff numbers for their “investment banks” or “corporate and investment banks.” They were UBS AG, Credit Suisse Group AG, J.P. Morgan Chase and Unicredit SpA.

Headhunters say a director running a global IT team of between 80 and 100 can now expect to earn between £250,000 and £300,000 a year, about the same as a vice-president at a bulge-bracket bank responsible for a team of four or five.

Our colleagues at sister paper Financial News are in the midst of a very important and serious piece of journalism.

After UBS new-signing Andrea Orcel was described as “the George Clooney of banking”, sparking Twitter traffic saying it’s a rather clichéd description for at least four other bankers, they’ve decided to settle the matter once and for all.

The U.K. government’s endorsement of the Vickers report on banking, which recommends separating the retail and investment banking arms of banks, doesn’t only pose a challenge for the future of 83% taxpayer-owned Royal Bank of Scotland, whose so-called Global Banking and Markets unit will almost certainly either be sold or scaled back as a result.

It will also force the management of the entire U.K. banking sector to take a long and hard look at the business models of those banks.

Barclays PLC could also examine the closure of its investment banking arm, Barclays Capital, analysts suggest.

The U.K. government has been forced to make these changes in order to ensure that the taxpayer is never again called upon to bail out a failing bank, as it did with RBS, Lloyds Banking Group and Northern Rock during the 2008-2009 financial crisis.

With the perceived role that the so-called “casino” arms of U.K. banks played in inflaming the financial crisis still a sore point among many U.K. voters and against the backdrop of continued euro zone uncertainty and another possible U.K. recession, this political imperative has been at the heart of the Vickers report.

While quite understandable that British lawmakers have put protecting citizens at the heart of the agenda, it’s perhaps unfortunate in the longer term that this has been allowed to overshadow a broader debate about whether or not retail and investment banks genuinely do complement one another.